Is increasing the retirement age a good idea?

Pakistan at the moment has more than 2.5 million pensioners and this number will rise further in coming years. PHOTO: SHUTTERSHOCK

Due to its current inefficient governance, Pakistan is currently facing issues on all fronts and unfortunately, the problems are expected to worsen in the near future.

Because Pakistan didn’t have enough problems already, a new problem of pension payments has surfaced. The government is currently struggling to process pension payments to its retired employees or their families in a timely manner. Many factors contribute to this issue, including presence of ghost employees in various departments. If drastic measures are not taken to eradicate the concerned problem on immediate basis, it will certainly worsen the country’s economic woes in the near future.

One major hiccup is that in some organisations, the pension expenditure exceeds the expenditure on salaries. For example, in the 2017-19 financial year, Pakistan Railway’s salaries were accounted for Rs26.34 billion but Rs31.68 billion was spent as pension. After deducting pension and salaries, Pakistan Railway is left with an insufficient amount to run its day-to-day operations.

Case in point: Pakistan Steel Mill (PSM) has been out of operation for nearly four years but the government is still bearing the burden of its pensioners. The current government during the existing financial crunch paid a sum of Rs1 billion as pension to the widows of PSM’s deceased employees.

Highlighting the negative impact of rising pensioners on the fragile economy of Pakistan, Hasaan Khawar in his article published in Express Tribune last year provided some grave statistics. According to Khawar, the federal government’s pension expenditure has grown five times, from Rs50 billion in 2008-09 to Rs248 billion in 2017-18. During the same period, the size of the budget grew from Rs2 trillion to Rs5.1 trillion. This means that while the size of the budget grew by 11% per annum during the last nine years, the pension payments grew by 20% also, making pension expenditure 5% of the total budget (as compared to 2.5% in 2008). If this trend continues at the same pace, by 2050, the pension expenditure would account for 56% of the overall federal budget.

Simultaneously, provinces are also grappling to pay pension to its retired employees. For instance, Balochistan in the previous fiscal year cut down its development budget to make timely payment to pensioners.

The incumbent government of Pakistan Tehreek-e-Insaf (PTI) is now realising the gravity of the issue of rising pension expenditure and is trying to find a solution to this problem. One of the options they’re considering is to increase the superannuation age from the existing 60 years to 63 years for federal government employees and for provincial government employees in Khyber Pakhtunkhwa (K-P) and Punjab which are governed by PTI-led coalition governments.

The idea of restructuring the civil service was initially floated by the Task Force on Institutional Reforms, which is currently working under the prime minister, as they believe that there is need to increase the retirement age since the minimum age to enter civil services has also been increased from 28 years to 30 years by the previous government.

An estimate from the finance ministry highlighted that if this respective proposal is accepted and the retirement age is extended, it will allow government to save Rs72 billion per annum.

According to the original Civil Servant Act 1973, the retirement age for government employees was initially set at 50 years at a time when the average life expectancy in the country was 55 years only. Retirement age was later increased to 60 years, some 35 years ago.

Since the current life expectancy in Pakistan has now increased to 69 years, there is no harm in increasing the retirement age to 63 years from the current age.

In 2014, the International Monetary Fund (IMF) as part of its reform programme has advised the government of Pakistan to increase the retirement age from the existing 60 years to 62 years and include pension bills, but unfortunately, the then government shelved this proposal without considering its merits and demerits.

In between all these discussions about extending retirement age, we should not ignore our ‘ageing population’. According to the United Nations, the ageing population will become a problem globally. The number of elderly people is expected to double by 2050 and triple by 2100, rising from 962 million globally in 2017 to 2.1 billion by 2050 and 3.1 billion by 2100 respectively.

Globally, population aged 60 or over is growing faster than younger age groups. In this background, to keep the ageing population active and also to reduce the pension burden from the national exchequer, many countries of Europe, Asia and other parts of the world are thinking about increasing the retirement age.

For example, the government of Azerbaijan intends to increase retirement age to 65 years for men by 2021 (62 years currently) and by 2027 for women (60 years currently).

The current retirement age in Belgium is 65 years, and authorities are planning to increase it to 67 years by 2027. In Germany, the retirement age is to be increased gradually and reach 67 years by 2029. Some countries like Denmark are planning to gradually take retirement age to 67 years and continue to increase it further in accordance with the increase in average life expectancy of its population.

China, Britain, Netherlands, Canada and many other countries are developing policies to enhance their pension system, making it more viable for its ageing population.

Pakistan at the moment has more than 2.5 million pensioners and this number will rise further in coming years. The government of K-P has already increased the retirement age to 63 years and they estimate that it will allow the provincial government to save Rs24 billion per annum.

The federal government should also immediately abolish gratuity and replace it with provident fund for all its employees at federal and provincial level. This provident fund can be invested in mutual funds and other government securities later.

Perhaps introduce a reappointment system for employees who are healthy and willing to work more after reaching the retirement age by eradicating ghost employees from its pension disbursement list on war footings.

There is a famous saying, ’empty mind is a devil’s den’. Simply put, when people who have reached a certain age are willing to work to keep themselves active, the government should be offering more opportunities, not sending them home based on an assumption that ‘they’re too old to work and contribute’. It’s a win-win situation for both the economy and the people.